Loucks v. Smith (In re Smith), 537 B.R. 1

Defendant Rory Smith owned/controlled restaurant entities (Sunrise, RHI, SSI, Shorest) that operated a Shoney’s in Clanton, Alabama; Plaintiffs Loucks and Woodham were employees who alleged ongoing sexual harassment and a hostile work environment by managers/co-workers.
Plaintiffs sued the corporate defendants in federal district court (Title VII and tort claims); amended complaint added Smith as an individual defendant; default judgment entered against Smith and others after protracted litigation and missed appearances by some defendants.
Multiple related debtors filed Chapter 7 on the eve of trial or damages hearings; Plaintiffs then filed this adversary proceeding seeking a determination that their claims against Smith are non-dischargeable under 11 U.S.C. § 523(a)(6) (willful and malicious injury).
Smith moved to dismiss for lack of subject-matter jurisdiction and for failure to state a § 523(a)(6) claim, arguing he did not personally commit willful conduct and that filing bankruptcy is not a willful/malicious act; Plaintiffs argued collateral estoppel from the district court default and that Smith’s conduct (including bankruptcy timing) was willful/malicious.
The bankruptcy court held it had jurisdiction and authority to enter final judgment, rejected collateral estoppel based on the default judgment as to willfulness, and concluded Plaintiffs alleged only vicarious liability for Smith, which cannot satisfy the “willful” element of § 523(a)(6).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Subject-matter jurisdiction / authority to enter final order	Bankruptcy court may hear § 523 adversary; proceed	Court lacks jurisdiction	Court has jurisdiction (28 U.S.C. § 1334(b)) and authority to enter final order (core proceeding)
Preclusive effect of district court default (collateral estoppel)	Default judgment precludes relitigation of issues including willfulness	Default not "actually litigated," so no preclusion	Collateral estoppel does not preclude inquiry into willfulness because default judgment did not necessarily decide debtor’s personal willfulness
Whether vicarious liability suffices for § 523(a)(6) willfulness	Plaintiffs: Smith’s knowledge/inaction and vicarious liability make debt non-dischargeable	Smith: he did not personally intend injury; only employees committed harassment	Held that vicarious/imputed liability alone cannot satisfy the § 523(a)(6) "willful" element; debtor must have committed deliberate injury himself
Whether filing bankruptcy (or timing) is willful/malicious injury	Plaintiffs: bankruptcy filings timed/used to obstruct, hence willful/malicious	Smith: filing bankruptcy is not malicious or injurious per se	Court: filing bankruptcy is not a willful/malicious injury under § 523(a)(6); claim fails

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: separate factual allegations required for plausibility)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must state plausible claim to survive dismissal)
Grogan v. Garner, 498 U.S. 279 (1991) (preponderance standard in discharge-exception proceedings)
Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§ 523(a)(6) covers deliberate or intentional injury, not merely intentional acts)
Bush v. Balfour Beatty Bahamas, Ltd., 62 F.3d 1319 (11th Cir. 1995) (default may have preclusive effect when party substantially participated then obstructed adjudication)
Latch, 820 F.2d 1163 (11th Cir. 1987) (look to whole record to determine whether an earlier judgment necessarily decided the issue)
Held, 734 F.2d 628 (11th Cir. 1984) (issue must be critical and necessary to prior judgment for collateral estoppel to apply)
Jennings, 670 F.3d 1329 (11th Cir. 2012) (definition of "willful" and "malicious" in § 523(a)(6))
Burlington Indus. v. Ellerth, 524 U.S. 742 (1998) (employer vicarious liability for supervisor-created hostile environment)
Austin (In re Austin), 36 B.R. 306 (Bankr. M.D. Tenn. 1984) (vicarious liability does not satisfy § 523(a)(6) willfulness requirement)